Small businesses across the UK are continuing to experience unprecedented levels of deflation resulting in rapidly declining operating costs. The cost of running a small business has fallen to -1.4 per cent deflation over Q1 2009, according to the latest Business Inflation Guide (BIG) from MORE TH>N BUSINESS.The sharp decline marks the second consecutive quarter of sustained deflation for the small business community. In Q4 2008 costs plunged to -2.9 per cent deflation. Declining labour, advertising, vehicle and raw material costs have all contributed to the continuing falls in Q1 2009, however MORE TH>N BUSINESS warns profit margins still remain under huge stress due to low demand for products and services.
Read more: http://newsroom.morethan.com/small-businesses-running-costs-continue-to-fall_649
Source: More Than
www.ukba.co.uk
Showing posts with label profit. Show all posts
Showing posts with label profit. Show all posts
Wednesday, 24 June 2009
Sunday, 1 February 2009
Spread your risk
A lot of smaller businesses rely on just one or two customers and one or two products and services. In an economic downturn all it takes is for one customer to move to a cheaper supplier or even go under and the business is no longer viable.
Who earns you the most profits?
Identify your most profitable customers – then seek to bring in new customers with a similar profile.
Watch your back
While trying to pull in new customers do not neglect those vital 20% who earn you the most profits. It costs four or five times as much to get a new customer as it does to keep an existing one.
Spread your risk
Expanding your prospects One way to attract a wider customer base is to make the most of the internet.
What to watch out for
• If you are expanding into new markets or need new equipment to remain competitive, avoid using cashflow to finance this – you may need this cash to keep you afloat. Use alternatives such as asset finance.
• Avoid taking on more than you can handle. This is known as overtrading – an imbalance between the work you take on and your capacity to do that work. Once again you can run out of cash to finance these new orders.
[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]
http://www.ukba.co.uk
Who earns you the most profits?
Identify your most profitable customers – then seek to bring in new customers with a similar profile.
Watch your back
While trying to pull in new customers do not neglect those vital 20% who earn you the most profits. It costs four or five times as much to get a new customer as it does to keep an existing one.
Spread your risk
Expanding your prospects One way to attract a wider customer base is to make the most of the internet.
What to watch out for
• If you are expanding into new markets or need new equipment to remain competitive, avoid using cashflow to finance this – you may need this cash to keep you afloat. Use alternatives such as asset finance.
• Avoid taking on more than you can handle. This is known as overtrading – an imbalance between the work you take on and your capacity to do that work. Once again you can run out of cash to finance these new orders.
[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]
http://www.ukba.co.uk
Profit is sanity
‘Turnover is vanity, profit is sanity’ – so the business saying goes. But what does that mean in practice? In an economic downturn, sales often start to fall and so businesses scramble to replace this lost turnover.
Competition intensifies and prices are cut to win business. But instead of replacing lost turnover to help cover your costs, you have unwittingly taken on unprofitable business that will leave you with a loss.
Is that new business worth it?
• Cost each product or service: do not take on business if it does not make a profit
• Look at ways to reduce costs: this will allow you more scope to reduce prices
• Be wary of big orders: this can lead to overtrading when the business takes on more work than it can handle and runs out of money to finance it
Maintain Profit Margins
The flip side of price is cost – you can maintain profit margins even if you are reducing prices, provided you also reduce the cost of what you are making or providing.
It is vital to keep overheads down but avoid cutting:
• Stock levels to such a low point that you cannot fulfil new orders
• Staff you need to run your business
• Sales and marketing expenditure which you need to attract new business
• Investment in equipment or product development that enables you to remain competitive
• Insurance as you could leave your business inadequately covered
On cutting costs...
• Don’t get emotionally involved. Make hard-headed business decisions. You may want to keep a particular office open because it was where you started or a certain product line because you created it. If it is losing you money, you have to lose it – or risk losing your business.
• Make decisions based on the facts. A “gut feel” is not good enough. It is only when you see what is profitable and what is not that you can make a decision.
• Start with non-essential expenditure – then tackle fixed costs such as utilities, stationery and other outgoings.
• Pass on price cuts. If you are under pressure to cut your prices ask your suppliers to do the same – if you can. If they won’t negotiate on price ask for longer payment periods or shop around.
Are you making the most of management information?
Knowing which products are going to sell best and bring in the most profits and which costs are rising and could hit your margins, is vital. For that, you need to have the right management information.
The key difference between this economic downturn and the recession of the early 1990s is information technology.
The Key Barometers
There are usually four or five barometers that indicate the health of any business. You need these to be annual rolling totals either on a monthly or even a weekly basis. Check the actual figures against those forecasted and against the previous year’s. These key indicators will vary from business to business but could include:
• Turnover – not just the total but some key figures.
• Enquiries – or foot traffic, number of visits to your website or another key indicator of interest in your product or service.
• Stock – if too much of one item is piling up it is a reflection that sales of that particular product are falling. The danger is that too much cashflow will be tied up when you need it for day-to-day needs.
• Costs – keep track of how these are rising. As has been seen in recent months, some costs – such as fuel – can rise rapidly.
• Late payments – you need to keep a daily eye on how quickly money is coming in so you can spot potential problems early on.
Then you need to act on the information. For example, by selling off surplus stock or putting up prices to reflect rising costs.
[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]
http://www.ukba.co.uk
Competition intensifies and prices are cut to win business. But instead of replacing lost turnover to help cover your costs, you have unwittingly taken on unprofitable business that will leave you with a loss.
Is that new business worth it?
• Cost each product or service: do not take on business if it does not make a profit
• Look at ways to reduce costs: this will allow you more scope to reduce prices
• Be wary of big orders: this can lead to overtrading when the business takes on more work than it can handle and runs out of money to finance it
Maintain Profit Margins
The flip side of price is cost – you can maintain profit margins even if you are reducing prices, provided you also reduce the cost of what you are making or providing.
It is vital to keep overheads down but avoid cutting:
• Stock levels to such a low point that you cannot fulfil new orders
• Staff you need to run your business
• Sales and marketing expenditure which you need to attract new business
• Investment in equipment or product development that enables you to remain competitive
• Insurance as you could leave your business inadequately covered
On cutting costs...
• Don’t get emotionally involved. Make hard-headed business decisions. You may want to keep a particular office open because it was where you started or a certain product line because you created it. If it is losing you money, you have to lose it – or risk losing your business.
• Make decisions based on the facts. A “gut feel” is not good enough. It is only when you see what is profitable and what is not that you can make a decision.
• Start with non-essential expenditure – then tackle fixed costs such as utilities, stationery and other outgoings.
• Pass on price cuts. If you are under pressure to cut your prices ask your suppliers to do the same – if you can. If they won’t negotiate on price ask for longer payment periods or shop around.
Are you making the most of management information?
Knowing which products are going to sell best and bring in the most profits and which costs are rising and could hit your margins, is vital. For that, you need to have the right management information.
The key difference between this economic downturn and the recession of the early 1990s is information technology.
The Key Barometers
There are usually four or five barometers that indicate the health of any business. You need these to be annual rolling totals either on a monthly or even a weekly basis. Check the actual figures against those forecasted and against the previous year’s. These key indicators will vary from business to business but could include:
• Turnover – not just the total but some key figures.
• Enquiries – or foot traffic, number of visits to your website or another key indicator of interest in your product or service.
• Stock – if too much of one item is piling up it is a reflection that sales of that particular product are falling. The danger is that too much cashflow will be tied up when you need it for day-to-day needs.
• Costs – keep track of how these are rising. As has been seen in recent months, some costs – such as fuel – can rise rapidly.
• Late payments – you need to keep a daily eye on how quickly money is coming in so you can spot potential problems early on.
Then you need to act on the information. For example, by selling off surplus stock or putting up prices to reflect rising costs.
[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]
http://www.ukba.co.uk
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